Feb 4, 2000

The Horizon Towers Appellate Court Decision 02 April 2009 
defines the duties of the Sale Committee

The duties of an SC
134      Having regard to our earlier analysis, the duties of an SC include (but are not limited to): (a) the duty of loyalty or fidelity; (b) the duty of even-handedness; (c) the duty to avoid any conflict of interest; (d) the duty to make full disclosure of relevant information; and (e) the duty to act with conscientiousness. As, under s 84A(9)(a)(i) of the LTSA, the price of the collective sale is an ingredient of good faith in the transaction, the SC must act with conscientiousness to obtain the best price reasonably obtainable for the property – in short, to behave as a prudent owner would. We will now give our views on what these duties entail.

"(2) An SC was the agent of all the subsidiary proprietors in relation to the collective sale of their strata units as a result of which a fiduciary relationship arose between the SC and the subsidiary proprietors. Since under the statutory collective sale scheme, an SC had the power to sell the units of objecting subsidiary proprietors against their wishes, the need for the imposition of high standards of conduct upon the SC, not only in relation to the consenting but to the objecting subsidiary proprietors as well, was even more pressing than in the case of an ordinary common law agency relationship. Given that the SCC owed fiduciary duties qua agent to the owners of the units in a strata development collectively, the SC had obligations akin to that of a trustee with a power of sale. The SC's duties included (a) the duty of loyalty or fidelity; (b) the duty of even-handedness; (c) the duty to avoid any conflict of interest (d) the duty to make full disclosure of relevant information; (e) the duty to obtain the best price for the subsidiary proprietors; at [104],[108],[113],[124] and [134]." Source;-Summary of Case

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and again since it bears repeating......
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9) .... It was not the law that a fiduciary was entitled to rely on legal advice alone to exonerate itself from any breach of duty. While a trustee of a power of sale was entitled to obtain advice from experts on matters that were not within his competence or knowledge, ultimately the trustee has to make his own decision in good faith, responsibly and reasonably; at[197],[203] and [210]. Source:-Summary of case
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The relationship between an SC and subsidiary proprietors.
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104 In our view, the SC is the agent of the subsidiary proprietors collectively in relation to the collective sale of their strata units.
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105 Section 84(1A) of the LTSA constitutes statutory confirmation of an SC's agent status for all subsidiary proprietors collectively.
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107 As the SC is an agent of the subsidiary proprietors collectively, there is no point in which the SC may act solely in the interests of any group of subsidiary proprietors, whether they are consenting or objecting proprietors. When an SC is first appointed, it is with a view to achieving a collective sale for the benefit of all subsidiary proprietors.
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However once the requisite consent is obtained and the interests of the objecting subsidiary proprietors become distinguishable from those of the consenting subsidiary proprietors the SC's role becomes that of an impartial agent acting for both camps. In other words, the SC must hold an even hand between the interests.
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The SC as a fiduciary
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108 A fiduciary relationship between an SC and the subsidiary proprietors arises from the underlying agency relationship.
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113 An agent may affect the rights of his principle in various degrees of detriment to the principle.
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There would naturally be an inbuilt inclination (or bias) on the part of an SC to sell rather than not to sell. The need for the imposition of high standards of accountability and conduct upon the SC vis-a-vis not only the consenting, but also the objecting subsidiary proprietors is therefore even more pressing than in the case of ordinary common law agency.
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A "trustee' of the power of sale
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118 Unlike a typical property agent which has only one principle, an SC has for principles a large number of subsidiary proprietors divided into two main groups if they cannot agree to sell their properties collectively. As mentioned above (at [107]), the SC cannot simply carry out the letter of its instructions from the consenting principles and disregard the interests of the objecting principles altogether.
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The duties of the SC
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134 ....... the duties of an SC include (but are not limited to) : (a) a duty of loyalty and fidelity; (b) the duty of even-handedness; (c) the duty to avoid any conflict of interest; (d) the duty to make full disclosure of relevant information; and (e) the duty to act with conscientiousness. As, under s84A(9)(a)(i) of the LTSA, the price of the collective sale is an ingredient of good faith in the transaction, the SC must act with conscientiousness to obtain the best price reasonable obtainable for the property- in short, to behave as a prudent owner would.
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Duty of loyalty or fidelity
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135 The distinguishing obligation of a fiduciary is the obligation of loyalty, the principle is entitled to the single-minded loyalty of his fiduciary. This core liability has several facets. A fiduciary must act in good faith; he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of his principal. This is not intended to be an exhaustive list, but it is sufficient to indicate the nature of fiduciary obligations.
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The duty of even-handedness
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136 The duty of even handedness is the duty of impartiality that is implicit in parliament's recognition of the need to safeguard the interests of the minority in a collective sale


Duty to avoid any potential conflict of interest
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138 It is important to note that these prospective duties are targeted against potential (not merely actual) conflict. A fiduciary should not even contemplate procuring a personal advantage, let alone secure one.
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  ....the law sensibly does not require proof of an actual conflict of interest where such an allegation is made. The law only requires that there is a reasonable perception of a conflict of interest,since it is impossible to conduct an inquiry into the subjective motives which influenced a fiduciary’s conduct to determine whether a genuine conflict of interest occurred.
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Duty of full disclosure
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147 The fiduciary must disclose the personal interest as soon as a possible conflict arises, or as soon after as practicable. An "interest' may be constituted by "the presence of some personal concern of possible significant pecuniary value in a decision taken, or transaction affected, by the fiduciary"
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151 In our view, an SC member who acquires additional units in the strata development (especially if they are financed by bank loans) before or after he becomes a member of the SC must disclose such interest to all the subsidiary proprietors including the objecting owners.
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Duty of conscientiousness

153      An SC clearly has a duty to act conscientiously in exercising the power of collective sale. We note that trustees owe a duty of care to their beneficiaries and are bound to take all precautions in the management of the trust property as an ordinary prudent man of business would take in his own affairs

Example of a failure of duty of conscientiousness (HT):

Failure to consult the consenting subsidiary proprietors
193      Finally, the original SC had breached its duty of conscientiousness by failing to consult the consenting subsidiary proprietors when some of its members had reasonable doubts about whether the original mandate to sell the Property at $500m still reflected the wishes of the subsidiary proprietors.  


It would be fair to say that the SC was aware that many of the subsidiary proprietors, when they entered into the CSA, had an expectation of a substantial premium over the prevailing market prices if and when the sale was entered into. Prior to issuing that letter, therefore, it ought to have confirmed that the consenting subsidiary proprietors wished the sale to proceed on the basis of the original mandate. Bharat Mandloi’s testimony that the SC had refused to go back to the subsidiary proprietors for fear that the sale would be “as good as dead” (see [31] above) emphatically revealed its dereliction of its duty of conscientiousness as trustee of the power of sale.

Duty to obtain the best price

 
 154      The duty to obtain the best price arises out of the SC’s duty to act conscientiously as well as to act even-handedly in the collective interest of all the subsidiary proprietors. The duty to obtain the best sale price is particularly crucial for the objecting subsidiary proprietors.

(A)        INCREASING THE PROSPECTS OF OBTAINING THE BEST PRICE
157      In order to increase the prospects of obtaining the best price for the property, an SC qua prudent owner ought to exercise due diligence in appointing a competent property agent to market the property and negotiate with potential purchasers. An SC ought to market (through the property agent) the property for a reasonable period of time to the largest number of potential purchasers in order to create the widest catchment of offers.
158      The SC should follow up on all expressions of interest and offers that result from its marketing efforts. It should carry out sufficient investigations and due diligence to determine their genuineness, and not ignore them merely on the basis of its own perception or judgment.
159      Where reasonable, it should try and create competition between interested purchasers so as to obtain the best sale price, for instance by alerting a potential purchaser to the existence of other expressions of interest or offers (at the same or higher price) for the property.


Duty to consult the subsidiary proprietors

166      Finally, whenever there is reasonable doubt as to the proper course to adopt, the SC ought to seek fresh instructions or guidance from the consenting subsidiary proprietors from whom it draws its mandate. It is true that the LTSA and most collective sale agreements do not contain any specific provision requiring an SC to obtain approval from the consenting subsidiary proprietors of the sale price before the SC issues an option to the potential purchaser (para 7(1)(g) of the Third Schedule to the LTSA provides that an SC shall convene a general meeting for the purposes of considering the terms and conditions of the sale and purchase agreement, but para 7(4) states that this need only be convened after the close of a public tender or auction or after the SC has entered into a private contract for sale). However, an SC’s duty to consult with the consenting subsidiary proprietors arises out of its fiduciary obligations, independently of its contractual obligations (see [109] above).
167      An SC cannot rely on a mechanistic or literal compliance with its statutory and contractual obligations to escape indictment for breach of its obligations as fiduciary of the subsidiary proprietors. The first principle is that an SC has to work for the benefit of all the subsidiary proprietors. This will no doubt involve going beyond just paying lip service to the relevant procedural rules under the LTSA and its mandate under the collective sale agreement. Indeed, in evaluating the conduct of an SC, the contextual conditions in which the power of sale is exercised is everything.

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